Vanguard's New Account type

[Camas Lilly]

In trying to add a PIMCO fund to my IRA with Vanguard, they are telling me I need to upgrade to their new account type, a Vanguard Brokerage Account. They say there are no tax implications, fees or charges of any type. These new accounts are able to hold Vanguard mutual funds, ETFs as well as individual stocks, bonds, CDs and mutual funds and ETFs from other companies.

Has anyone done this yet and is there any reason NOT to?

 

[RunningBum]

Many of us have done this, after being assured it would be a seamless event. I think they want to cut costs and dump their old account types. You should be able to search and find the disadvantages. What I remember is that I got two sets of tax forms the year of the switch, one for each account type. They didn't tell me this and I was very confused why the first one seemed incomplete until I get the second one many days later. Also if you search for forms for various things, the default seems to be to give you the form for the old account type. So you send it in, perhaps after going to the trouble of getting a medallion signature, only to find out you used the wrong form. Now I just tell my flagship rep what I want to do and ask for the right form.

 

[MRG]

I moved a 401k to an IRA at Vanguard 3 years ago and was set up as a new brokerage account. No problems.[emoji41]

Vanguard is moving everyone to the new system and shutting down the old. It's a nice migration path and painless. Eventually everyone will be on the newer system.

Come on in the water is fine.

 

[bolt]

In trying to add a PIMCO fund to my IRA with Vanguard, they are telling me I need to upgrade to their new account type, a Vanguard Brokerage Account. They say there are no tax implications, fees or charges of any type. These new accounts are able to hold Vanguard mutual funds, ETFs as well as individual stocks, bonds, CDs and mutual funds and ETFs from other companies.

Has anyone done this yet and is there any reason NOT to?

Bogleheads.org has endless threads debating this if you put your query in their top L/R search boxes.
https://www.bogleheads.org/index.php

You can just open a brokerage account, maintaining current holdings as-is. Said brokerage they want you in is a Wellington subcontractor afaik.
Just sayin....there are many factors like reinvestment of divs etc. Good Luck!

 

[Camas Lilly]

Many of us have done this, after being assured it would be a seamless event. I think they want to cut costs and dump their old account types. You should be able to search and find the disadvantages. What I remember is that I got two sets of tax forms the year of the switch, one for each account type. They didn't tell me this and I was very confused why the first one seemed incomplete until I get the second one many days later. Also if you search for forms for various things, the default seems to be to give you the form for the old account type. So you send it in, perhaps after going to the trouble of getting a medallion signature, only to find out you used the wrong form. Now I just tell my flagship rep what I want to do and ask for the right form.

And your funds stayed as they were, no changes?

 

[pb4uski]

Many of us have done this, after being assured it would be a seamless event. I think they want to cut costs and dump their old account types. You should be able to search and find the disadvantages. What I remember is that I got two sets of tax forms the year of the switch, one for each account type. ....

I transitioned mine just after the new year before any dividends were received and avoided the two tax form issue... made it easy.

 

[Camas Lilly]

I moved a 401k to an IRA at Vanguard 3 years ago and was set up as a new brokerage account. No problems.[emoji41]

Vanguard is moving everyone to the new system and shutting down the old. It's a nice migration path and painless. Eventually everyone will be on the newer system.

Come on in the water is fine.

 

[RunningBum]

And your funds stayed as they were, no changes?

Yes. No issues at all there, and the cost basis was transferred over.

I'd suggest doing as pb4 did, do it in early January so that you don't have any taxable transactions for the year in the old account. Just a little simpler.

 

[mckittri2000]

Roth IRA

Actually there are a few tax issues if you are transferring a Roth IRA to their brokerage account. The 5 year rule starts over when you switch to a brokerage account.

 

[Camas Lilly]

Yes. No issues at all there, and the cost basis was transferred over.

I'd suggest doing as pb4 did, do it in early January so that you don't have any taxable transactions for the year in the old account. Just a little simpler.

Well, I've got cash sitting in the MM in the mean time. Two months is a long time.

 

[RunningBum]

Well, I've got cash sitting in the MM in the mean time. Two months is a long time.

I think my main issue was that I wasn't aware I'd get two forms. As long as you're aware, it's just a minor hassle. btw, you'll get your tax forms later with the brokerage account. I don't recall how much later, but it is later.

 

[W2R]

I switched over to the brokerage accounts a while back. I got the two sets of tax forms, but I was expecting that from what people here said, that so that was kind of ho-hum for me.

I'm OK with the brokerage accounts but I really liked it better before (probably due to just an innate resistance to change). I used to just have one money market account, Prime Money Market. Now I also have to have a separate settlement account, with lower interest and that is annoying.

 

[Hopeful]

Actually there are a few tax issues if you are transferring a Roth IRA to their brokerage account. The 5 year rule starts over when you switch to a brokerage account.

I have never heard this. Can anyone else confirm this? It was my understanding that the 5 year rule applied to when a Roth was opened not to each individual account.

 

[gwraigty]

I have never heard this. Can anyone else confirm this? It was my understanding that the 5 year rule applied to when a Roth was opened not to each individual account.

Here's a link to some info:

https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp

The 5-year rule applies in three situations: if you withdraw account earnings, if you convert a traditional IRA to a Roth, and if a beneficiary inherits a Roth IRA.

I don't know why converting a Roth IRA from Vanguard's mutual fund account to a brokerage account would reset the 5 year clock. It's not the type of conversion that usually has tax consequences.

 

[SecondCor521]

I switched over to the brokerage accounts a while back. I got the two sets of tax forms, but I was expecting that from what people here said, that so that was kind of ho-hum for me.

I'm OK with the brokerage accounts but I really liked it better before (probably due to just an innate resistance to change). I used to just have one money market account, Prime Money Market. Now I also have to have a separate settlement account, with lower interest and that is annoying.

You might be able to call Vanguard and have them change your settlement account to Prime MM. I thought that was one of the options, anyway.

 

[bada bing]

Actually there are a few tax issues if you are transferring a Roth IRA to their brokerage account. The 5 year rule starts over when you switch to a brokerage account.

Not true for IRAs. The 5 year rule is a once in a lifetime restriction. The IRS considers all IRA accounts held by an individual to be parts of just one global individual account. 5 years from first Roth account opened anywhere satisfies the 5 year time for the individual. This is why the pro-rata rule is global across all held IRAs and why you can take RMDs for all accounts from just one.

Employer sponsored plans like 401Ks aren't treated this way. Every account has its own 5 year clock. This is also why you have to make RMDs from each account held separately.

 

[MRG]

I don't know why converting a Roth IRA from Vanguard's mutual fund account to a brokerage account would reset the 5 year clock. It's not the type of conversion that usually has tax consequences.

Nor do I. It's a simple conversion that happens all the time.

 

[W2R]

You might be able to call Vanguard and have them change your settlement account to Prime MM. I thought that was one of the options, anyway.

Hmm!! Maybe I can figure out a way to do it online. Thanks.

 

[Rianne]

In trying to add a PIMCO fund to my IRA with Vanguard, they are telling me I need to upgrade to their new account type, a Vanguard Brokerage Account. They say there are no tax implications, fees or charges of any type. These new accounts are able to hold Vanguard mutual funds, ETFs as well as individual stocks, bonds, CDs and mutual funds from other companies.

Has anyone done this yet and is there any reason NOT to?

We upgraded to a VBA a few years ago. No downside as far as we're concerned. Ours has all of the above in bold, except for ETFs which we don't have.